Earnings Call: Q1 2016

Apr 27, 2016

Ladies and gentlemen, thank you for holding and welcome to the Q1 twenty sixteen results call. At this time, all participants are in a listen only mode. There will be I would now like to hand the conference over to your host today, Annika Falkenbrand. Please go ahead. Thank you very much. So welcome to the presentation of our results for the Q1. Turning to Slide number 2. The quarter started with a stock market tumble and renewed concern driven by oil prices and also the slowdown in China, credit spreads widened sharply. In addition, both the Swedish Riksbank and ECB lowered interest rates during this Q1. As a result, customers became more cautious, which reflected in the low level of activity and continued strong demand for risk management services. Still, the quarter, in particular March, ended on a more positive note. We continue to strengthen our balance sheet, and the asset quality is also in this quarter very good. On Page 3, as we have previously communicated, we changed our organization at the turn of the year. So we are now based on our customer segments and not products. In connection with this, we also changed the basis for calculating goodwill the lower organizational level than before. This means that we write off goodwill with SEK 5,300,000,000. At the same time, we took another SEK 600,000,000 in nonrecurring expenses related to the derecognition of IT assets we no longer use as well as for cost adjustments in the Baltic countries and also a little in Germany. For the sake of simplicity, I will continue to present the underlying operational results that is excluding the one off effect as we clearly disclosed on March 29. These two can follow how the bank is actually doing. Market conditions were challenging, both for our customers and also for us. Income decreased by 9% compared with the last quarter 2015 and costs fell by 1%. And operating profit fell 18% from the previous quarter to SEK 4,500,000,000 Return on equity was 10.1%, and our common equity Tier 1 capital ratio increased to 19.1%. I will now briefly comment on the different lines. If we start on NII on Slide 4, it decreased 1% compared with the previous quarter and by 6% compared with the same quarter last year. Customer driven net interest income increased by 3% compared to the previous quarter, primarily due to slightly better margins on both deposits and lending. In this environment, we support the division's deposits. You might say that we internally subsidize, and this also explains why net interest income from what we call funding and other also decreases. Lending volumes increased slightly, EUR 15,000,000,000 since the beginning of the year, as we see higher demand from Swedish small and medium sized enterprises as well as from certain segments in the Baltics. We have some growth in mortgages even if we continue to grow slower than the market. We grew with 3.2% versus the market growth of 8.3%. It is difficult to predict volume development going forward. Credit demand among large corporates remains low. We are more affected by international sentiment. It seems maybe a bit more optimistic among companies operating in Sweden. Turning to Page 5. Net fee and commission income fell by 11% compared to the previous quarter and by 17% from last year. The reason is primarily that market values are down in the quarter. For example, the stock on stock exchange fell 7% on average. Lower market values decreased managed volumes and produced also very limited performance fees in this quarter. In the Q1, we also had full effect from interchange fees in the card operation, which affected the result by $85,000,000 compared to previous quarter. Aside from a few IPOs, there have been very low activity in business segments and largely loan transactions have been lacking in the market. We attracted though further inflows of assets under management, dollars 7,000,000,000 this quarter. On Slide 6, you see the NFI decreased by 15% versus the previous quarter and by 19% against the Q1 2015. The main reason is that we have the mark to market valuation, the CVA, DVA and OCA, working against that this quarter, which we all know can vary a lot between the quarters. In the 4th quarter, they contributed to plus 121,000,000 dollars And now in the Q1, they were negative minus $153,000,000 mainly impacted by low volatility credit spreads. Customer activity has been good in both the fixed income and foreign exchange markets as customers have demanded hedging services, while the equity side has some headwinds from stock market trends and the lower number of IPOs during the quarter. Operating leverage on Page 7. The Q1 of our new 3 year plan has been challenging on the income side, but we are actually now focusing on the 11 quarters that actually remain on the business plan. We have, for years, worked successfully with the cost cap. And as a result of the change in reporting for our Life operation, we have also adjusted our cost cap accordingly to now being EUR 22,000,000,000 for this year and next year. On Page 8, when we see the division, according to our new customer centric organization, The important thing is really to follow how our customer segments interact with us and how we make sure that we fulfill all their needs and not follow the product as such. Seasonally, the Q1 is usually weaker than the Q4, and that is so also, of course, this year. There's also a big difference between the Q1 this year and last year when the stock market percent in Q1 2015, and we did not have negative interest rates at this level. A lot can happen in 1 year. If we look at large corporate and finance institutions, the result is down by 19%, excluding one off effects from the previous quarter. Given uncertainty in the market, customer demand for risk management services across all asset classes was good, while the number of loaner transactions have been very few and credit demand has been held back by uncertainty. Among financial institutions, client activity was high as clients, given the current interest rate environment, look for other investments with better returns. Profit for the Q1 amounted to 2,200,000,000 dollars It's actually more or less unchanged versus Q1 2015 if you exclude the effects from market valuations, the CVIs, etcetera, for about EUR 300,000,000. So Q1, Q1 on our Corporate Advice Institutions is actually pretty close to flat. We then move to corporate and private customers in Sweden. They were affected by negative interest rates and the interchange fees on cards, and operating income fell by 3% compared to the previous quarter. Since last summer, we have grown more slowly in mortgages or basically at half the pace of the market. That is still the case. We see that households, in line with the increase in housing prices, find it harder to meet our criteria of 7% interest rate, a total debt limit of 5x gross household income and amortization, and that is particularly felt in Stockholm. On the corporate side, we see that both the number of customers and the volume of loans are increasing, which I will return to shortly. Life and Investment Management reports lower earnings, down 18% from the previous quarter. Here, the stock market declined hit asset values, and both base commissions and performance based income declined. Weighted new sales within Life increased by $13,000,000,000 or 8%. This quarter, we launched traditional insurance even on the occupational pension side, which we are allowed to do. Baltics showed flat income compared to the previous quarter and adjusted for nonrecurring items. Profit increased slightly. We saw a small mortgage increase in Estonia and Lithuania. And also in Lithuania, corporate lending also increased, and credit quality in the Baltic countries remained good. So then go over to the balance sheet on Slide 9, it has been further strengthened during the quarter. Credit quality remains very good and the credit loss level is 8 basis points. We still have around a quarter of our balance sheet in liquidity reserves. Our common equity Tier 1 capital ratio was 19 0.1% compared with 18.8% at year end. The ratio increased primarily due to risk weighted assets declining in the quarter as a result of lower market risk. So to conclude, before we open up for questions, customer expectations will be the key to our efforts in fulfilling our goals. The starting point is always to have relevant products and services for our customers at all times. We want to have satisfied customers who really feel that we do create value for them. So we are really committed to the world class service that we will make sure that we will deliver. And with this, I'd be happy to take questions together with John Eric and also And your first question comes from the line of Onur Kienen of Deutsche Bank. Please go ahead. Good afternoon. Thank you very much for taking the questions. I just had 2 revenue questions, please. My first question is on fee income. I just wanted I was hoping you could help us understand how the recurring fee income has changed, particularly around kind of securities financing revenues. If I look at kind of 2015 last year, at particularly at the net security commissions revenues. It looked like these were seasonally higher by about DKK 8 SEK840 1,000,000 in Q2. So I just wanted to follow-up on the comments from the press conference and see, is this €800,000,000 completely disappearing? Or is it halving? I was hoping you could just give us some color around that. And then I just had a second question on net interest income. Thank you. Sorry, Omar, do you want to repeat just the second question, please? The second question on net interest income. Just wondering about the outlook from here and particularly whether year on year 2016 NII. Could it stay flat on 2015? Or what I guess is the outlook on NII from here given the rate environment going forward? Okay. Thanks, Omar. If I start with that last one then, I think if as you say, if we for a minute then assume that the RIXS pact doesn't lower rates further and that spreads stay fairly stable from here, I think we are positive on the outlook of the NII. And the reason I say that is that we are continuing the repricing of the mortgage book. And we are seeing in the corporate segment that we are seeing some volume growth and we are seeing at that margins are also in the large corporate sector bottoming out and starting to creep up a little bit even though I shouldn't want to make too much of that last comment. But altogether, that means it can be a little bit positive. On the fees and the seasonality that you've seen over the past few years in Q2, I think we pointed to this morning that the liquidity and funding measures that have been brought in, in terms of LCR and NSFR, we are now getting closer to the actual date when NSFR is being applied. And our adjustments to that target means that we don't want to see the sort of peaks that we've had in the past on that line. So you should expect less than the 800 you referred to in 20 15, how much less we'll see, but how much lower we'll see, but it will certainly be less. You should remember though that there are costs associated with that as well. So the net effect, I think, will be lower profit contribution, but remains to be seen how much less. Okay. So you're referring to costs, not net fee expenses, but actually on the operating cost line? No, I'm referring to fee expense. Okay. I thought the CHF 800,000,000 was a net number. Yes. Okay then. So the Eunice, you're shaking your head. No. But it depends on how much that you, so to say, calculate into. Not everything is connected to this liquidity. You have other effects in the second quarter. So I the data on this sounds high. Okay. Understood. And on the net interest income, I thought the comments on corporate loan repricing were interesting. Do you think this has to do with the increase in risk weights that we've seen? Well, I think the mean, we had a question this morning, are we going to is the industry going to try to offload the cost of regulation? And I think all banks have been saying yes to that question and so have we. Whether that will be possible to do remains to be seen. And we were also saying this morning that it's an important factor in whether that's going to be possible is what the Norwegians and the Danes are doing and whether we get a level playing field on that or not in this geography up here. If Norway and Denmark stays with lower capital ratios or requirements, then the ability to reprice is going to be more difficult. Okay, great. And just perhaps just a quick final question. Just the also related to net interest income. The quarterly change in NII that was specifically from funding and other, is that have we seen pretty much all of the effect from the Riksbank rate cut? Or is there some spillover into Q2? No. I think we've seen most of that now if they don't do anything further. And as Angel had commented earlier, I think what we're doing a little bit there between funding and other and the deposit NII contribution is that we're just making sure that in the internal pricing in the bank that we're supporting our deposit gathering and making sure that we hold on to the volumes we've got. So we're subsidizing a little bit in those lines. Okay, great. Thank you very much. Your next question comes from the line of Heine Luz of Goldman Sachs. Please go ahead. Hello. Yes, I mean, there's 2 things, but first thing I would generally sort of like to ask you sort of on capital and how much sort of you would your current estimate would be how the new measures sort of would impact you by much of the PD flow and the maturity and also if you can split it between the 2 and how you generally sort of feel in terms of capital buffers on this? And the same thing would be because I'm not sure if I fully understand it when you on the fee income side, you commented mainly sort of on some fee expenses. So but generally if I sort of look at your fee line sort of the things that sort of brought it down also had sort of been stuff like payment and card fees remain sort of bit compressed, but just to get a better payment and card fees, but payment and card fees and lending fees and others, just to get a sense how much you would think are recurring. So probably it's fair to assume that on the payment and card fees, you like this what we're seeing now is the level and we should maybe take this €100,000,000 off just to get a feel for what do you see sort of as the underlying sort of base? And sorry if I didn't just didn't correctly understand it when you answered the previous questions. Thanks. Okay. On the first question and on the capital requirements, a few comments. We estimate that our measures were minimum today 16.2% on the common equity Tier 1. And as you know, we entertain a management buffer of 150 basis points on top of that, what we've been saying on the new suggested corporate risk ratings from the regulator is that the combined effect of the M factor and the PDs will be less than 1%, taken off of the 19.1% that we published today, which means that we're still way above the minimum plus the management buffer. We haven't split it between the impact and the PDs, so I won't go into that here either. But we think we can deal with that in a good way. The comment I made on the fee number there, I think Omar from Deutsche was trying to come to terms with whether it was SEK 800,000,000 net that was going to affect the or going to be a lower number in Q2 or not. And we, I think, come to the conclusion that it's going to be less than that. That will be the effect, but we didn't go further into quantifying what that number was. And on the interchange fees, we're saying that we lost about SEK 85,000,000 compared to Q4, which makes up in the morning conversation around SEK 400,000,000 lower in the year. And in the morning, we said we will be aiming to and think we will be capable of compensating some of that, but certainly not all of it. Okay. Thank you very much. Thank you. Your next questions come from the line of Anton Krayatian. Please go ahead. Good afternoon. Just two questions, please. Firstly, continuing on the theme of fees, can you give us some sense of how corporate sentiment and corporate activity in the capital markets is developing in the 1st months of this quarter, whether you have accumulated substantial pipeline, which you expect to benefit from? And secondly, on net interest income, specifically on the tailwinds from mortgage repricing, can you give us some sense where the gap between front book and back book rates are at the moment? How this gap has changed? And how do you expect it to evolve in the coming quarters as well? Thank you. Okay. I can start with saying that the capital market trend activity and the corporate activity overall, it has been very required in the Q1, and I think that is obviously so what you have seen also on commission in F and B. I think though we did see some volatility in March. We have not gone further in discussing that into Q2. But March was a pretty good month, and we see the markets are returning a little bit. But again, it's a bit too early to say that we anticipate that this activity will continue, but March was better. When it comes to the difference between the Frankfurt and the back book, yes, there is a difference and the front book is, of course, higher today, but we have not said exactly how much, but it is better. But we are growing slower than our peers. On the other hand, we think with this new model, it's easier. I think the discussion since we are so active in the largest stick business where we have lost our outcome on mortgages has not been due to interest rates. It will be more to the 5x leverage actually. So I think we will find it easier to reprice today than in the past. Of course, it's easier that we all price the same way, and it's easier to deduct on something than to add on to something. So I think for us, it's been a relief to leave our own model, and that will, I think, for the future, also benefit the margins. At the same time, we are more cautious regarding the market, and we think that the market, not only the households, but also the The co ops. The co ops, That one should be a little bit cautious here on the leverage in total. But we need to look into that because we can clearly see that the market is moving rapidly. Thank you. That's very helpful. Your next question comes from the line of Daniel Doherty of JPMorgan. Please go ahead. Hi, Daniel Dottoy here. Just two questions. The first one, a follow-up on the corporate margins. I apologize if I missed it. But basically, in addition to the regulation that you're seeing, the regulatory review of the Swedish FSA in Sweden, are you seeing any other sort of factors that are influencing the more positive outlook on the corporate margins? Also, is it more broad based? Or is it sort of relating to any specific industries? And then secondly, can you just give us an update on the on balance sheet exposure to oil and gas? And related to that, one of your peers earlier this week reported a fairly substantial negative REA effect from rating migration, citing deterioration in the credit quality of the oil book. Looking through your stock book, I guess you saw fairly stable development at least on a group basis. So just wondering if perhaps you saw an offset elsewhere in your loan book or whether you're odd book? Thank you. No, I think it's a tough to comment on the oil and gas. I think our view regarding that sector has not changed since Q4. We said when we launched Q4 that we anticipate that during 2016, there will be restructuring in the oil and gas market, and we will see some of the restructuring. We are close to our customers, and that hasn't really changed, and that hasn't been needed to make any provisioning in this quarter due to that either. But we follow it closely, and we think there will come restructuring. When it comes to corporate margins, I think one thing that has helped mainly the banks this quarter is that since the markets have been so volatile, actually issuing your own corporate bonds has become more difficult actually. And I think that kind of shifted way back to them to find themselves getting help from the banks again. So I think that has helped us. I think one thing is, of course, that we still see that international peers are maybe not so keen using the balance sheet either. So I think it goes back to saying that only using your balance sheet will not be enough in the future. You have to make sure that you support your customers with many more sources of products because it's going to be a very expensive way only offering your balance sheet. I think what Jan Erik touched upon before though is that, of course, that we always worry about that the domestic Swedish FSA is harsh on Swedish banks. And of course, we have competition in Sweden, not only from Swedish peers. And that is something we are trying to be slightly more vocal about in Sweden actually and also trying to encourage the FSA to also talk to the Norwegian and Danish and Finnish SFAs. So they kind of keep it together slightly more than Sweden moving ahead because in that case, we will have more tailwind than some of our even our Nordic peers. But international banks, they are usually not so cheap to trade with Elbit because they also worry about the balance sheet. So it's been more a domestic issue. But all in all, we do see the corporate margins have widened a little bit. So from that perspective, it has been slightly better. Okay. That's very clear. And then just on the oil exposure, if you could give an update. I think it was about SEK 29,000,000,000 last quarter. Yes, it hasn't changed actually. Your last comment? It's very stable around SEK 30,000,000,000. EUR 30,000,000,000, got it. Thank you very much. You're welcome. Thank you. Your next question comes from the line of Adrian Cighi of RBC. Please go I have two questions, 1 on capital and 1 on loan losses. On capital, I know you're now above your management buffer already as of Q1 and continuing to build capital even though you're occurring at the higher payout ratio of last year. I know it's early in the year, but could you potentially discuss any thoughts on the right capital levels for SEB? Would you consider having a higher buffer temporarily to deal with the uncertainty from the Basel regulation? Or alternatively, would you be able to provide us with what the impact of the Basel regulation standardized credit risk would be on SEB? And the one on loan losses, obviously, loan loss of 8 basis points are a small increase versus last year, but remain very low historically. And you've talked about the oil exposures and the potential need for increase in that later in the year. Do you still see the full year level around 9 to 10 basis points? Or should we think of a higher level? Any thoughts on that would be appreciated. Thank you. Okay. Adrian, on the capital question, I think the when it comes to the right capital level, I think we are going to stay for the time being with the 16.2 minuteimum and the 150 basis points buffer on top of that. And just as you say, we continue to build capital along the lines of what we did in Q1, 30 basis points a quarter or something along those lines. I think the question that you put is, what is the Basel Committee going to come up with? I think the timetable for that is that around September, there's an important meeting in the committee on in September. So sometime during the autumn, it will start to be very clear what the Wassa Committee's proposal will finally look like. We don't think it's very meaningful to the market talk about the potential impact from that at this stage. And the reason we say that is that it's going to go through the European Commission, and that's something that may take quite a bit of time. And I think there is, what should we say, varied levels of enthusiasm in the European Commission around the proposals from the Basel Committee. And that also goes for the Swedish regulators. So by the time it's passed from Basel Committee through the Commission into the Swedish regulation, a number of years will have passed, and it may well have been watered down quite a bit. I think we'll have to come back and update you on what the potential Thank you. Thank you. Your next question Sorry, I forgot the comment on credit losses. I mean, I think we were quite clear also that the 6 basis points we had at year end was extremely low. And I think for a bank like Essity, with the corporate exposure we have, I think we feel comfortable staying within 8 to 10 basis points. I mean, there's no change in that, but that is still a very low figure. But I think that, that probably can still be used. So we don't really expect to see that big deterioration from where we are. Many thanks. Very helpful. Thank you. And your next question comes from the line of Jan Wolter of Credit Suisse. Please go ahead. Yes. Hi, Jan Wolter here, Credit Suisse. Just a couple of follow ups from the meeting in Stockholm today. First, the RWA change, specifically the market and operational risk decrease in the quarter, market risk decrease. What was the key driver of that, please? That's my first question. John, we have variations in market risk all the time. There's a little bit of volatility in that number as we go. So I don't read any more into it than that really. It's just that moves up and down a little bit. I think we had a conversation this morning in the press conference where you attempt this value on the lines of is this materially affecting the revenue line or not. And I was arguing it doesn't really. I think there's supporting arguments or supporting evidence for that is the fairly good result from the trading line this quarter even though the market rates came down a little bit. So I don't think there's any draw line there. Okay. So there are no model changes, approvals or anything that is impacting this quarter. Just see that the market risk number has been coming down here for I think it's 4, 5, 4 quarters at least in the past year. So if there's anything structural there? No. There's nothing material coming out of model changes or structurally. So it's just naturally a little bit less of market risk in the actual business. Okay. No, thanks. And a couple housekeeping questions there. The market's income by product line, I think the bank has previously provided us with that. I didn't find it. I don't know if you decided not to include it. We have the split on product different products for exchange equities and fixed income, but the nominal level, if you're able to provide that. And secondly, what was the performance fees in the Q1? I couldn't find that either, unfortunately. Okay. Regarding the 2 housekeeping issues, Jan, I think it's now when we have gone over to the new segment the customer segment based reporting and then we are then having a large corporate and financial institutions, and we have then decided not to break it down further down. And if we were to do that, then would be large corporate in 1 and financial institutions in the other and not markets and corporate and investment banking and transaction services as before. So you will not we will not provide you with the market number, but we thought it would be helpful to have the split to support the note under the NFI since market is a big an important driver for the NFI line. And when it comes to the second one on the performance fees, it is 22,000,000 for the Q1. Thank you. And is there any reason to believe that the performance fees could pick up materially during the rest of the year? Or are funds below the water line, so to speak? So it would suggest that the to recoup the loss sort of performance fees in the Q1, it's difficult to get them back during the remainder of the year. But On the other hand, Joao, performances are always pretty volatile. They were surprisingly good in Q1 2015. We had a great start last year, and we've gotten slowly this year. But I would feel very unhappy if we couldn't see this quarter, I must say. Okay. No, many thanks. That's very helpful. Thank you. Your next question comes from the line of Jakob Kruse of Autonomous. Please go ahead. Hi, Jakob from Autonomous. I just wanted to ask about your dividend income in trading, so things like dividend stripping and these kind of things. Could you just discuss or talk a little bit about how much money you made there and what changes you see on that business? Thank you. Jakob, I don't think we will disclose the fact numbers we made on certain different business lines other than what's in the public disclosure. But I think we the arguments we put forward in the morning here is that as a result of the NSFR and the LCR business, that business become significantly less attractive, and it just consumes too much of that resource. So you will see a lower number and I think it was Omar kicked off the Q and A there, but trying to come to terms with the number and we're saying it's going to if it was 800 ish last year according to Omar then it's something less this year. How much less we'll see. Okay, great. Thank you. Thank you. Your next question comes from the line of Riccardo Rovere of Mediobanca. Please go ahead. Good afternoon to everybody. Sorry, I didn't have chances to listening to the press conference this morning. So I apologize if I ask questions that have already been answered this morning. The first one is what kind of chances do you attach to rates remaining where they are? If not mistaken, before you stated if rates remain where they are, we are relatively positive on development of NII for the second question I have, the feeling is the feeling I have is that the intervention on risk weights from the Swedish FSA at the end of the day seems to be relatively mild. Risk rates in Sweden and corporate look to be to remain well below the European average. Do you think regardless of what the Basel Committee will decide and how long it will take, do you think the Swedish FSA will have more action on this in the foreseeable future? Thanks. I think, Ricardo, on the first question on the remaining on the probability of rates remaining where they are, I think we sign a fairly high probability to that. And that's really our macro people that I'm quoting when we say that. We're at 0.5 negative and to go further than that, there's quite a bit of signal in the from the different members of the rig's bank that maybe this is enough. But I think we'll just have to wait and see, but that's what our macro people think anyway. Terms of the risk weights, I think the numbers that the different banks around here in Stockholm have caused it on the effects perhaps have been a little bit lower than expected. But I think the Swedish regulator is trying to certainly trying to address what is in an international context, low risk weights on corporates, but it will not want to go the route of what the Basel Committee is suggesting. That's my understanding. I think they are trying to protect the risk based view of the balance sheet to a much further extent than the Basel Committee is suggesting. And I think we'll just have to wait and see. Time will tell. It's very difficult to have a view on how long this will take or where it will end up. And I think the uncertainty around what will finally find its way into our balance sheets and our risk weights is the uncertainty around that is very high. Okay. Thanks. And if I may follow-up one second. Have you ever looked at returns by corporate risk rates in SEB, but not just in SEB, in the Nordic countries in general, are so lower than anywhere else Europe. What makes the corporate book of a Swedish bank, which operates in an open end economy and kind of I don't want to say global banks, but certainly not fully dependent just on Sweden. Why is the book, the risk profile of the book of Swedish MAX so better to deserve such a capital treatment? I think I can briefly comment that by saying that, first of all, I think the way we base our risk on actual fact, I think SEB, we go back to 1990. So we have the crisis in the 90s in our numbers, and we have the crisis of Russia in 90 8, then we also have the financial crisis in 2,008. So we have 3 different crises kind of 30 years back in our figures. And despite that, you could see how well the corporate portfolio has developed. So I think it's very much that we operate in a small region, but we also know our corporates very, very well. And we follow our corporates out in the world, but we don't expose ourselves to international corporates out in the world that we don't know. So it's very much a relationship. We also have the transparency that in Sweden, the official figures is really that you can check yourself how the customers have been doing, how much they tax, how much of the how much they pay in salaries. Everything is transparent in Sweden. So it's quite easy also to make a judgment. So I think looking at Sweden and saying why do we have lower risk rating, I think the reason is, of course, we have shown in the past that we've had lower risks and also that the credit losses have been actually rather small in comparison to Europe and also, of course, the transparency issue. I think that's part of why we also feel it's so important for us to continue. I think the only thing that is not acceptable that we've had in Sweden and in the modeling has been that the modeling has only been backward looking. And that, I must admit myself, is probably not correct because just because you haven't lost anything in the last 30 years on some corporate doesn't mean that you can't lose in the future. So you also, of course, have to add some uncertainty element also for the future. So I think there is a bit of the discrepancy. I think you can see that also on corporate losses in other banks in Europe. Okay, okay. Thanks. Thank you. And your next question comes from the line of Myrija Perin of Citigroup. Please go ahead. Hello. Thank you very much for taking question. I'm calling from the credit team at Citi. The Swedish National Debt Office published a consultation paper on MREL yesterday and I have 3 questions related to that please. The first one is I was wondering if you could just give us some color about what you understand your requirement would be under the proposed rules. The second one is on what type of liabilities you think you could use to fill that requirement, whether it would have to be Tier 2 or a Tier 1 or whether it would only be another type of debt or whether it could be a mix of both? And lastly, and that's basically related to the first two questions, whether you could provide us with an update on where we stand in Sweden at the application of the BRRD, whether you think we are heading towards a French solution where you essentially have intermediate senior institute or the Spanish way intermediate subbed or whether you think a German solution with statutory subordination of seniors would be the solution? And what is your preferred outcome? Thank you. Well, thanks. Let me try to deal with those. I think the in terms of the requirement, I think I should firstly say that this is now very fresh information out of the National Debt Office. So again, it will have to be interpreted and read through more carefully perhaps. But I think a first glance at it is, of course, that they are trying to come to terms with how to define and size the recapitalization amount and the loss absorption amount and what constitutes those buffers. And I think in our case, I think the recapitalization amount, the way we read it is going to have to be equivalent to the size of the total capital requirement today, which is 20.6 percent. And the loss absorption amount is the total capital requirement less the buffers, which means SEK 12,600,000. So if you add those up, you come to just north of SEK 33,000,000. Now the second question is, I think the liabilities, what type of instruments? Well, I don't think AT1s will do it. It will have to be, as you say, sort of German style solution where outstanding senior unsecured can be grandfathered into eligible MREL debt or a new asset class, a sort of a Tier 3 asset class, which can then be made eligible. And that's, I suppose, what you alluded to as the French solution. Now if we have to go down that route, that is quite a big change, I think, in terms of the structure of the market. And it will affect all the banks in a very big way, I think, And large volumes of Tier 3 instruments, if we call them that for a minute, will have to be issued, which means the phase in period for that will have to be fairly long. So the bottom line, I think where we are now, we've certainly got senior unsecured outstanding. The German solution is an easy fix if you want. The French size solution will take more time, but I think we can cater for both that given the time that we'll be available to do it. I said initially there's uncertainty and there certainly is I think the TLAC requirements from the Americans will have to be factored in, which means time is going to be fairly long before we know. Thank you. And do you have any update on where a decision would be taken by the government? Is it expected to happen this year still? Sorry, can you say that again? It's a solution or a decision on whether to follow the subordination of senior unsecured or the other solution expected this year? Do you have any idea of when the government could decide on that? I think they're just saying that they're sort of kicking the can down the road a bit and saying that in 2017 sometime they will try to make up their minds. I think they are aiming for some sort of subordinated solution, but until then, they are fine with the senior unsecured solution, so to speak. But early as 2017 sometime, I haven't seen anything more specific than that. Thank you very much. Thank you. There are no additional questions at this time. Okay. Then thanks everyone for the interest and for the I think today. And if any yes, just let us know if you have any further